Bank of England’s Weale sees little evidence of need for rate cut

BANK of England policymakers must not rush to cut interest rates to boost the economy when there is little evidence that the Brexit vote has left households and businesses “panicstricken”, according to a top official.

Martin Weale said that, while it was “quite likely that demand will weaken more than supply in the near term”, it was important that the monetary policy committee that sets interest rates considered the impact of the recent drop in the pound on inflation, which could overshoot its 2pc target, as well as growth.

While he said the likely impact on growth could strengthen the case for early action, the “early appointment of a new Prime Minister will have gone at least some way to restore confidence”.

Speaking at an event organised by the Resolution Foundation, he said: “This uncertainty points to the argument that we should wait for firmer evidence before making any policy change at least in the absence of any strong arguments for an immediate change.”

His comments came as economists at PwC said Britain would avoid a “severe recession” in the aftermath of the Brexit vote, despite the likelihood of a large slowdown in foreign investment.

The big four accountancy firm forecast that the UK economy would grow by 0.6pc next year, a fifth of the pace of expansion enjoyed in 2014.

Yet the uncertainty generated by last month’s referendum means that growth could actually be as high as 1.5pc, PwC said.

Forecasters said that even under their most pessimistic scenario, GDP would contract by only 1pc in 2017. The analysis suggested Britain would avoid a “severe recession” of the kind seen in the wake of the 2008 crisis.

Mr Weale did warn that in the longer term, “the nation’s income, and thus people’s incomes, are likely to be re- duced as a result of the choice made on June 23”.

John Hawksworth, PwC’s chief economist, said that “growth is likely to be significantly slower in the short term due to the political and economic uncertainty, which is likely to cause some business investment to be scaled down or deferred”.

PwC suggested that the main reason for the near-term slowdown would be a decline in foreign investment, with commercial property among the areas most heavily impacted. In the shortterm, construction businesses and makers of plant machinery could be “exposed”, the accountancy firm said.

Manufacturers have lost confidence in the weeks after the vote, according to trade body EEF, which said that companies have become anxious about customer demand.

The organisation now believes that the manufacturing sector will remain in recession until at least the end of 2017.